What is 'Depreciation'?

Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account for declines in value over time ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Term of the Day | Words to Know Depreciation Depreciation is an accounting method of allocating the cost of a tangible or physical asset over its useful life or life expectancy. Depreciation represents how much of an asset's value has been used up. Depreciating assets helps companies earn revenue from an asset while expensing a portion of its cost each year the asset is in use. If not taken into account, it can greatly affect profits. Businesses can depreciate long-term assets for both tax and accounting purposes. For example, companies can take a tax deduction for the cost of the asset, meaning it reduces taxable income. However, the Internal Revenue Service (IRS) states that when depreciating assets, companies must spread the cost out over time. The IRS also has rules for when companies can take a deduction. Read More » Related to "Depreciation" Understanding Methods and Assumptions of Depreciation Examine how methods and assumptions in depreciation impact the value of long-term assets and how these factors can affect short-term earnings results. Read More » Amortization vs. Depreciation: What's the Difference? Learn the difference between amortization and depreciation and how companies use these accounting methods to their advantage when they must declare the value of assets in their possession. Read More » How Are Accumulated Depreciation and Depreciation Expense Related? Understand the relationship between accumulated depreciation and depreciation expense and learn how each is accounted for on financial statements. Read More » SPONSORED BY FIDELITY INVESTMENTS Investing in Women in More Ways Than One Hiring and retaining women is essential to making financial expertise broadly accessible. Here's why Fidelity is prioritizing women's career growth and potential. Learn More » Related Definitions Sum-Of-The-Years' Digits Sum-of-the-years'-digits is an accelerated method for calculating an asset's depreciation. Read More » Economic Depreciation Economic depreciation is a measure of the decrease in the market value of an asset over time from influential economic factors. Read More » Internal Revenue Service The Internal Revenue Service (IRS) is the U.S. federal agency that oversees the collection of taxes—primarily income taxes—and the enforcement of tax laws. Read More » Deduction A deduction is any item or expenditure subtracted from gross income to reduce the amount of income subject to tax. Read More » CONNECT WITH INVESTOPEDIA Email sent to: geezers.mail@gmail.com To update your newsletter preferences or unsubscribe, click here. 114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC, All Rights Reserved | Privacy Policy